Organization Theory by Chester Barnard

This book aims to improve understanding of Barnard’s theory; it systematically explains Barnard’s six main concepts of organization and clarifies the revolutionary aspects of the concept of formal organization. First, this book contributes as an introductory guide to Barnard’s organization theory for undergraduate and graduate students; second, as a research to examine how Barnard developed his concepts of organization for researchers; and third, as a suggestion to create a new style of management for practitioners. This book is composed of eight chapters: an introduction, the main body of six chapters that summarize Barnard’s basic concepts of organization, and a conclusion. The six core chapters are designed with the same format: the main idea of each concept, a summary of the theory of each concept, and a discussion.

First of all, this chapter discusses what an individual is in an organization before discussing the concept of a cooperative system. This is because Barnard’s basic views on a human being are vital in understanding what a cooperation is. The chapter discusses why and how a cooperative system takes place. Individuals have their own motives; however, their ability is not always sufficient to achieve their motives under limitations imposed by the environment. Therefore, a cooperative system is used as a means to overcome such limitations. A cooperative system is an integration of physical, biological, and social factors; its purpose is to overcome the limitations. As a cooperative system is established, it develops its own purpose and special organ to maintain itself. The purpose of a cooperative system is different from that of an individual’s motives; a cooperative system becomes an independent entity and acquires its autonomy through having its own purpose. The conditions of survival for a cooperative system are effectiveness and efficiency, that is, to attain its purpose and satisfy individuals’ motives respectively.

A cooperative system is composed of physical, biological, and social factors; it is an integration of those three factors and has its own purpose. Its core subsystem is a formal organization, which is a common aspect of all cooperative systems. The concept of formal organization is different from that of a human group, which is composed of individuals and their interactions. A formal organization is defined as a system of contributors’ activities that are consciously coordinated by the organization’s purpose. A formal organization has some characteristics as a system; it is composed of its parts. However, the whole is more than the sum of its parts. Its parts and the whole are interrelated; its parts change the whole while the whole changes its parts. On the one hand, there are three conditions of establishing a formal organization: a common purpose, a willingness to cooperate, and communication. On the other hand, there are two conditions of surviving a formal organization: effectiveness and efficiency.

A society is composed of a network of formal organizations. There are superior and subordinate organizations, with the most comprehensive being states and churches. Moreover, a complex of informal organizations is overlaid and embedded therein. This is called an “organization society”, and an individual contributes to multiple formal organizations at the same time. The origin of a formal organization comes from spontaneous or deliberate creation; some organizations are produced from a parent organization, and others are divided into two or more organizations. All organizations grow from a small organization called a “unit organization.” A unit organization is limited in terms of size because of the limitation of communication and leadership. Therefore, when it is beyond its size limit, a large unit organization is divided into multiple unit organizations; then they are combined vertically or horizontally. Thus, a large organization is basically produced by combining two or more unit organizations. When two or more organizations are combined vertically, executive and operational organizations are created. A leader contributes to both executive and operational organizations as a connecter of these two organizations.

Informal organization is defined as the aggregate of human interactions. Informal organizations are created spontaneously everywhere personal contacts and interactions take place. Informal organization is different from formal organization in that informal organization does not have a common purpose; however, it leads to some common results. For example, the major effect of informal organization is to establish an organization culture by creating customs, mores, languages, and so on. Formal and informal organizations are in inseparable and interdependent relationships. Informal organization is the precondition for formal organization; once a formal organization is established, it creates informal organizations within it. Then, the informal organizations vitalize the formal organization and increase the willingness to cooperate through improving cohesiveness and the loyalty of contributors. It is noted that a formal organization works well with the duality of an informal organization. In fact, an informal organization functions at all levels of a formal organization; an informal executive organization is a good example of this.

Barnard added a new concept of organization, lateral organization, when he published his second book, Organization and Management. When Barnard (1938) argued the theory of complex formal organization, he pointed out that there are two different complex organizations: horizontal and vertical. A complex formal organization is created by combining two or more unit organizations. A unit organization is divided when it grows beyond its size limit. Divided unit organizations are combined horizontally or vertically. However, Barnard (1938) focused on vertically combined formal organizations; he just referred to the existence of horizontal complex organizations. Barnard (1948) fully examines lateral organizations in comparison with scalar organizations. First, this chapter explains the nature of lateral and scalar organizations; second, it examines the differences between lateral and scalar organizations and identifies advantages and disadvantages of both organizations; third, it discusses two balance problems for scalar organizations; finally, it presents some implications of the theory of lateral and scalar organization.

In general, organizational structure is recognized as a system of specialization. However, it has other functions, namely to create authority, to facilitate communication, and to maintain status. Therefore, organizational structure functions as a complex of systems of specialization, authority, communication, and status. This chapter highlights the function and dysfunction of status in a cooperative system. There are two types of status system: functional and scalar. Status comes from the difference between an individual’s abilities and their difficulties, and it is systematized by the importance of their abilities. A status system is established and maintained mainly by symbolic ceremonies and titles. A status system has positive functions for both individuals and cooperative systems. On the one hand, individuals enjoy benefits from a status system by receiving incentives and protecting their integrity. On the other hand, cooperative systems work well through a status system’s functions such as facilitating communication, providing incentives, and improving the sense of responsibility. However, a status system has some negative functions in terms of losing flexibility and adaptability because of its stability.

This chapter summarizes the main points of this book and then presents some conclusions. Barnard (1938) proposed four major concepts of organization: cooperative system and formal, complex formal, and informal organization. Then, Barnard (1948) added two more basic concepts: lateral organization and status system. Barnard started to argue that a cooperative system was a real organization; then, he went on to identify the essence of an organization and extracted an ideal organization such as a formal, informal, and complex formal organization; and finally, he proposed status system as a real organization. Thus, Barnard constructed a conceptual scheme for the theory of formal organization on the basis of his experience in exploring theoretically what an executive should do and how and why. Overall, Barnard presented organizing principles as well as organization forms. Those principles are based on interactions among people and unit organizations and how to connect them; they produce different organization forms by combining those principles. Organization forms are located in the matrix of formal-informal and horizontal-vertical axes. There are two formal organizations, a scalar organization and a lateral organization, while there are two informal organizations, an informal and an informal executive organization. Complex formal organizations are divided into two types: lateral and scalar organizations. A status system is a scalar organization with the function of a formal and informal organization.